An African airline venture backed by Lonrho and easyJet founder Sir Stelios
Haji-Ioannou may take two years to deliver returns and require significant
additional funding, the directors have admitted.

The business is being formed by the reversal of Lonrho’s African aviation wing, Fly540, into Aim-listed Rubicon Diversified Investments. The all-paper deal, involving the issuing of 1.15bn new Rubicon shares at 4.8p, values Lonrho’s loss-making Fly540 at $85.7m (£55m).

Lonrho will receive a 73.7pc stake in the enlarged Rubicon group, which intends to bring low-fare air travel to Africa under the Fastjet brand owned by Sir Stelios. He is paying nothing for his 5pc stake in Rubicon and will also take a €50,000 (£40,000) a month consultancy fee.

Industry expects were immediately foxed by the valuation put on the Lonrho business, which lost $19m in the 15 months to December 2011 when it carried 525,375 passengers. It has gross assets of $83.5m.

“It’s not immediately apparent how they are reaching this valuation at all. It looks really wacky,” said Bruce Davidson, an investment consultant who has long analysed Lonrho.

Richard Blakesley, Rubicon finance director, said the price reflected Lonrho’s six years of investment in the business as it built an operation that today has 10 turbo-prop planes and bases in Kenya, Tanzania, Angola and Ghana. The valuation was also signed off by Rubicon’s nominated adviser WH Ireland, which is receiving 18m warrants for shares, exercisable at 4.8p and below.

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Ed Winter, the former easyJet chief operating officer who is chief executive designate of Rubicon, said the company planned to build on the existing operations to “launch Fastjet with modern aircraft”.

He said that, if 3pc of the population in the existing four countries took two return flights a year, “that’s 12m people and about 40 aircraft”.

However, Rubicon admitted its ambitious plans “may require the raising of additional funding”, while Mr Blakesley refused to be drawn on when the business could be profitable. “In 18 months to two years, I think you will see happy investors,” was all he would say, pointing out that $12.6m of last time’s losses were due to start-up costs in Angola and Ghana.

The operation also has $45m debts, mainly relating to aircraft leases, though about $10m net debts.

Sir Stelios, who has a right to board seat, has failed to repeat his success at easyJet with any other of his ventures.

Lonrho chief executive Geoffrey White denied Sir Stelios was effectively in for free on the business. “Stelios is putting a lot on the line here, a major part of his persona is the airline business,” he said. “There’s downside for him on this not working.”

None of Rubicon’s four current directors, who include Mr White, Mr Blakesley and Lonrho chairman David Lenigas, are considered independent as they are being handed 20m shares each at 5p with no profit targets. The options cannot be exercised unless they increase annual passengers to 3m – six times today’s.